The global economy is on edge. According to UBS analysts, global economic growth will gradually slow down in the second half of 2025. At the same time, UBS believes that European private credit spreads will remain within their current range, offering a measure of stability.

While recent economic data from the United States and the European Union has surpassed expectations, easing recession fears triggered by Donald Trump's tariff policies, analysts caution against complacency. UBS notes that much of the recent growth was driven by front-loaded exports ahead of tariff implementation, a boost that may fade by the end of the year.

This forecast comes against a backdrop of more somber global outlooks. The Organization for Economic Cooperation and Development previously issued a warning about the impact of escalating tariffs on US growth prospects and later downgraded its global GDP forecast for 2025 to 2.9%, down from 3.1%.

Currently, Europe remains in Washington's crosshairs, UBS notes. The Trump administration imposed and then delayed punitive tariffs on the EU in response to what it deems unfair trade practices, the bank said.

If Europe manages to avoid higher tariffs, private credit spreads in the region could retreat to their lowest levels since the start of the year. UBS strategists' base-case scenario predicts that spreads will likely remain within their current range through the end of 2025, supported by healthy corporate balance sheets, low default rates, and strong technical factors.

The European private credit market is backed by solid fundamentals and ample dry powder to support liquidity and limit severe defaults, UBS analysts emphasized.

According to UBS, sectors most sensitive to tariff developments include investment-grade energy and high-yield basic resources. Meanwhile, investment-grade debt issued by financial institutions remains "ideally positioned." Capital goods and utilities in the EU have also delivered solid performance.

Against this backdrop, the bank recommends going long on the iTraxx Europe Main index, a key benchmark for European credit default swap spreads. Analysts anticipate heightened market volatility in July when the suspension of Trump's retaliatory tariffs on several countries expires.